Replacing Relypsa with a Promising New Selection
“Keep your face to the sunshine and you cannot see a shadow.” – Helen Keller
Biotech had another solid week and the sector has rallied over the past couple of weeks to within a few percent of what has proven to be a stubborn upward resistance level throughout 2016. Helping the rally were good earnings from one of the first big biotech stocks to report this quarter; Biogen (NASDAQ: BIIB) beat both on the top and the bottom lines on Thursday. Our portfolio saw some big performances by several of our small cap positions too.
I am hopeful we can finally break through the upward resistance levels that have existed all year on the biotech sector. I think the long bear market in this area is officially over. However, whether we can decisively rally through the top end of a recent trading range will be determined on how well second quarter earnings results from the large cap players come in over the next two weeks. If we continue to see an uptick in M&A activity in the space the odds of breaking through this resistance will increase greatly as well. I will be following both of these developments closely.
Performance Update:
Our benchmark the iShares Nasdaq Biotechnology ETF (NASDAQ: IBB), the largest ETF focused on the biotech sector with almost $9 billion in assets, is now down 18.38% since we launched the Biotech Gems service at the start of May of 2015.
Our large cap core positions are now down 1.02% on average while our small cap positions are down 16.30% on average, both not including dividends. Using the minimum 50% allocation recommended to our core positions gives us a blended loss of 8.66%, 972 basis points above our benchmark. The most conservative allocation of 75% dedicated to the large cap core positions results in a loss of 4.84%, 1,354 basis points above the benchmark.
Portfolio News:
The big news of the week of course was Relypsa (NASDAQ: RLYP) being bought out with a 60% premium by Galencia on Thursday. Based on option premiums and analyst commentary, I don’t think another bidder will emerge. However, I have bought September $35 calls for 25 cents apiece even as I sold my stake in Relypsa.
We will be officially closing out the Relypsa position today in a special update that you will receive this afternoon. I am replacing Relypsa with a vaccine maker that has some strong upcoming catalysts for share price appreciation. As of today, you will find Relypsa in the ‘Closed Positions’ section of the portfolio.
Progenics Pharmaceuticals (NASDAQ: PGNX) also delivered an approximate 20% gain after the FDA approved the oral version of relistor. This will boost sales and royalties from the overall relistor franchise substantially, trigger a $50 million regulatory milestone payout to Progenics, and greatly accelerate how fast the company can earn another $200 million in sales milestones. I personally believe this is a major turning point for the company and the beginning of an upward trajectory of the stock.
Ardelyx (NASDAQ: ARDX) had another nice week. Ardelyx has a mid-stage compound aimed at treating hyperkalemia as well as two other late stage compounds. Sanofi, which lost out on ZS Pharma (NASDAQ: ZSPH) in November of last year to AstraZeneca (NYSE: AZN)and was reportedly interested at one time in Relypsa, would be one possible suitor especially given Ardelyx’s small market capitalization of under $400 million. Actelion is in the same boat as a spurned bidder for ZS Pharma.
Gilead Sciences (NASDAQ: GILD) will kick off the quarterly earnings season for our large biotech “core” positions when it reports after the close today. Expectations are for $3.00 a share in earnings on approximately $7.8 billion in revenue. Investors will be keyed in to how hepatitis C sales are faring in established markets of United States and Europe.